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Cost-Effective IT: Offshoring

Cost-Effective IT: Offshoring, by Richard Sonnier

Houston Business Show "Advisor" Richard Sonnier, of the Information Technology Services firm Nimble Services, Inc., provides weekly information on our show about business technology issues. He can be reached at 281-445-4800 x250 or rsonnier@nimbleservices.com.

This week I will discuss IT offshoring.

The Hype

It is a Presidential campaign year and losing American jobs to foreign workers is once again a hot button issue. New to this campaign is the view that America is now losing IT jobs overseas. Since my company is in that business, I thought I might provide some prospective on the matter. Over the last ten years, I have seen a variety of attempts to leverage lower cost foreign workers in a number of IT areas. The results have been mixed at best. While the hourly rates of foreign IT workers are far lower and they may have good skills on paper, the reality is not nearly as good. If the work is done overseas then customers are generally very disappointed and the value is simply not there. Only the routine services like an IT call center have had any success. Dell Computers tried it, and moved their customer support center overseas. The customer response was so bad that they moved it right back to the good, old USA. Companies importing IT workers have had good success, but the hourly rates are often the same as US workers. In my opinion, there is very little to fear from overseas competition for high value IT jobs.

The Reality

The July 2004 issue of Reason magazine has an analysis of international trade that I recommend you read. The article is titled "10 Truths About Trade: Hard facts about offshoring, imports, and jobs." On the specific topic of IT offshoring, the article points out that the total number of jobs in IT (computer and mathematical occupations) will jump from 3.02 million in 2002 to 4.07 million in 2012 or a 35 percent increase. Further, the US runs a trade surplus with the world in IT services of $4.2 billion. The trade increases as foreign companies implement IT and the limited offshoring that is occurring actually increases the IT services trade with the US creating IT jobs.

Here in Houston we can look at the analogy of the oil and gas industry over the last few decades. Many oil and gas jobs have moved from the USA to the Middle East and other parts of the world. Still, Houston job base in oil and gas has grown. Even thought the work is over there, many of the products and services needed are design, manufactured and supplied from the US. The IT industry is the same. As the IT is implemented around the globe, US workers will benefit tremendously from the increased demand for IT services.

Next week, I will discuss Sarbanes-Oxley and IT auditing.

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